Merrill, Lynch, Pierce, Fenner & Smith, Inc v. MICHAEL CLEMENTE; GERALDINE WASKEVITCH formerly known as GERALDINE CLEMENTE

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 07-1021
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MERRILL, LYNCH, PIERCE, FENNER & SMITH, INC.
v.
MICHAEL CLEMENTE;
GERALDINE WASKEVITCH formerly known as GERALDINE CLEMENTE,
Appellants
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On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 06-cv-04264)
District Judge: Honorable Joel A. Pisano
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Submitted Under Third Circuit LAR 34.1(a)
March 6, 2008
Before: FISHER, GREENBERG and ROTH, Circuit Judges.
(Filed: March 31, 2008 )
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OPINION OF THE COURT
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FISHER, Circuit Judge.
Michael Clemente and Geraldine Waszkiewicz (“the plaintiffs”) appeal the District
Court’s order, which denied their motion to vacate an arbitration award, and instead

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confirmed the award. The arbitration award dismissed the plaintiffs’ claims against
Kevin Nohilly, Gustav Albert Fingado, and Merrill Lynch, Pierce, Fenner & Smith, Inc.
(“the defendants”), and denied them any relief. For the reasons set forth below, we will
affirm the order of the District Court.
I.
We write exclusively for the parties, who are familiar with the factual context and
legal history of this case. Therefore, we will set forth only those facts necessary to our
analysis.
The plaintiffs held accounts with Merrill Lynch at its Freehold, New Jersey office.
Kevin Nohilly, a Financial Advisor for Merrill Lynch, initially advised both of the
plaintiffs. However, after the plaintiffs divorced in 2000, they split their assets and
Clemente sought the advice of Gus Fingado, the Resident Manager of the Freehold office,
while Waszkiewicz continued to use Nohilly’s services.
On January 29, 2004, the plaintiffs filed a Statement of Claim with the National
Association of Securities Dealers, Inc. (“NASD”), alleging that the defendants had

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The plaintiffs alleged that the defendants had engaged in fraud, equitable fraud,1
negligent misrepresentation, breach of a fiduciary duty, negligence, negligence in
violating the rules of the New York Stock Exchange, and negligence in violating the rules
of the NASD.
The plaintiffs alleged that the defendants had breached their contract, their2
implied contract, and their quasi-contract.
The plaintiffs alleged that the defendants had violated New Jersey law by3
engaging in racketeering.
3
violated tort law, contract law, and New Jersey criminal law, in their dealings with the1 2 3
plaintiffs. These claims stem from an alleged “stop-loss order” that would have bound
Nohilly, and later Fingado, to either liquidate or convert the plaintiffs’ investments if the
value of the investments dropped by a certain percentage.
The parties agreed to resolve the matter in an arbitration proceeding under the
NASD using a panel of three arbitrators. Between May and August 2006, the panel
conducted a fourteen-day arbitration hearing. On August 7, 2006, the panel issued their
award, dismissing the plaintiffs’ claims, denying all relief to the plaintiffs, and assessing
the fees each party must pay. The defendants filed a motion with the United States
District Court for the District of New Jersey, seeking to confirm the award. The plaintiffs
filed a cross motion, seeking to vacate the award. The District Court granted the
defendants’ motion to confirm the award, and denied the plaintiffs’ motion to vacate the
award. This timely appeal followed.

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The defendants argue that the plaintiffs waived their right to argue that the4
arbitrators were biased because they did not raise their objections to the arbitrators, and in
fact, thanked the arbitrators for conducting the proceedings. Other Courts of Appeals
would agree that the plaintiffs have waived this argument. See Marino v. Writers Guild
of Am., 992 F.2d 1480, 1484 (9th Cir. 1993) (“[A] party may not sit idle through an
arbitration procedure and then collaterally attack that procedure on grounds not raised
before the arbitrators when the result turns out to be adverse. . . . This rule even extends
to questions, such as arbitrator bias, that go to the very heart of arbitral fairness.” (internal
citation omitted)); see also Brook v. Peak Intern., Ltd., 294 F.3d 668, 674 (5th Cir. 2002);
United Food & Comm. Workers v. Marval Poultry Co., 876 F.2d 346, 352 (4th Cir.
1989). While we have never published an opinion on this specific point, we find it
unnecessary to decide whether the argument has been waived in this case.
4
II.
The District Court had jurisdiction under 9 U.S.C. § 9, and we have jurisdiction
under 9 U.S.C. § 16(a)(1)(D). We exercise de novo review over the District Court’s
denial of a motion to vacate an arbitration award. Dluhos v. Strasberg, 321 F.3d 365, 369
(3d Cir. 2003). Our review of the arbitrator’s decision, however, is “extremely
deferential.” Id. at 370. “The net result . . . is generally to affirm easily the arbitration
award.” Id.
III.
A.
The plaintiffs argue that the District Court erred in denying the motion to vacate
the arbitration award because the panel of arbitrators were corrupt and biased in violation
of the Federal Arbitration Act (“FAA”). The FAA permits a court to vacate the award4
“(1) where the award was procured by corruption, fraud, or undue means; [or] (2) where

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there was evident partiality or corruption in the arbitrators, or either of them[.]” 9 U.S.C.
§ 10(a). Thus, “[v]acatur is appropriate only in ‘exceedingly narrow’ circumstances[.]”
Metromedia Energy, Inc. v. Enserch Energy Servs., 409 F.3d 574, 578 (3d Cir. 2005).
In demonstrating bias, we require a showing of “evident partiality,” meaning that
“the challenging party must show a reasonable person would have to conclude that the
arbitrator was partial to the other party to the arbitration.” Kaplan v. First Options of
Chicago, Inc., 19 F.3d 1503, 1523 n.30 (3d Cir. 1994) (internal quotation marks and
citation omitted). Moreover, “evident partiality is strong language and requires proof of
circumstances powerfully suggestive of bias.” Id. (internal quotation marks and citation
omitted).
The instances that the plaintiffs cite as demonstrating the arbitrator’s bias do not
rise to the level of demonstrating “evident partiality.” First, the plaintiffs argue that the
defendants’ counsel and one of the arbitrators had an exchange in which counsel gave the
arbitrator an empty binder, and the two joked that cash was inside the binder. The joke,
while not in the best judgment of either the arbitrator or counsel, does not “powerfully
suggest[]” that the arbitrator was so biased that he could not render a fair decision,
especially considering that it was clearly a joke that was heard by everyone at the hearing.
Second, the plaintiffs allege that the same arbitrator and Merrill Lynch personnel had ex
parte communications, and argue that the arbitrator “likely determined . . . that they were
really ‘a bunch of nice guys,’” passed these sentiments on to the fellow panelists, and the

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The plaintiffs further argue that the District Court erred in denying the plaintiffs’5
request to conduct discovery on these matters. We review the District Court’s denial of
discovery for an abuse of discretion. Brumfield v. Sanders, 232 F.3d 376, 380 (3d Cir.
2000). In the present case, plaintiffs’ counsel admitted to the District Court that he
thought it was “highly unlikely” that the arbitrator engaged in misconduct, but argued that
because it was not “impossible,” he should be allowed to conduct discovery. The District
Court concluded that the plaintiffs’ assertions of misconduct were unsupported, and there
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three panelists decided to find in the defendants’ favor as a result. This argument is, at
best, speculative, and is far too tenuous for a reasonable person to conclude that the three
panelists were biased in favor of the defendants. Finally, the plaintiffs allege that the
same arbitrator possibly communicated with a Smith Barney executive regarding this
arbitration because, when the plaintiffs contacted the executive, he stated that he was
aware that the arbitrator was on this panel. They argue that this alleged communication
constituted witness tampering. However, the plaintiffs have offered no proof as to how
the executive knew the identity of the arbitrator; thus, any theory is once again
speculative, and even if it were true, the contact involved one arbitrator, not the panel.
Moreover, Mr. Clemente testified that the executive’s reason for not serving as a witness
for the plaintiffs was because he served on other arbitration panels, not because of any
contact with the arbitrator, thus negating any suggestion of witness tampering.
Based on the foregoing, we cannot “conclude that the [panel of] arbitrator[s]
w[ere] partial to the other party to the arbitration.” Kaplan, 19 F.3d at 1523 n.30.
Therefore, we cannot vacate the arbitration award because the evidence does not
demonstrate that the arbitrators were corrupt or biased.5

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was no appearance of impartiality on the part of the arbitrators. We cannot conclude that
the District Court abused its discretion in choosing not to permit discovery, particularly
considering that plaintiffs’ counsel even admitted that it was “highly unlikely” that an
impropriety actually occurred.
The plaintiffs further argue that the panel’s manifest disregard for the applicable6
law resulted in a violation of several public policies, including the public policy of
protecting investors. However, because the panel did not manifestly disregard the law,
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B.
The plaintiffs also argue that the District Court erred in denying the motion to
vacate the arbitration award because the panel of arbitrators “manifestly disregarded the
law.” We have stated that one of the “exceedingly narrow circumstances” in which
vacatur is appropriate includes “where an arbitration panel manifestly disregards, rather
than merely erroneously interprets, the law.” Metromedia Energy, 409 F.3d at 378.
The plaintiffs argue that they presented the panel with a document that was “the
equivalent of a smoking gun,” and as a result, any decision other than one in favor of the
plaintiffs demonstrated a “manifest disregard” of the laws of negligence and fraud.
However, the authenticity of this document, which was a fax on Merrill Lynch’s
letterhead discussing the plaintiffs’ instructions regarding their “stop-loss” order, was a
contested issue during the arbitration proceedings. Thus, the panel’s decision did not
demonstrate that it made a choice to manifestly disregard the law, but instead only that it
made a choice not to credit a document as authentic. This question was one of fact, not of
law, and therefore, we cannot find that the panel manifestly disregarded the applicable
laws of negligence and fraud.6

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we find these arguments unavailing.
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C.
The plaintiffs argue that the panel’s award of forum fees against the plaintiffs is
invalid because it is unconscionable. Although the FAA demonstrates a “liberal federal
policy favoring arbitration agreements,” Gilmer v. Interstate/Johnson Lane Corp., 500
U.S. 20, 24 (1991) (citation and internal quotation omitted), a provision of an arbitration
agreement “may be revoked upon ‘grounds as exist at law or in equity for the revocation
of any contract.’” Southland Corp. v. Keating, 465 U.S. 1, 10-11 (1984) (quoting 9
U.S.C. § 2). Thus, a court may invalidate an arbitration provision using the “generally
recognized contract defense[] . . . [of] unconscionability.” Delta Funding Corp. v.
Harris, 912 A.2d 104, 111 (N.J. 2006) (citing Doctor’s Assocs., Inc. v. Casarotto, 517
U.S. 681, 687 (1996)). In Harris, the Supreme Court of New Jersey held that, in a
contract of adhesion, a “cost-shifting” provision that permits the arbitrator to allocate the
entire cost of arbitration to a consumer would be unconscionable if the arbitrator
interprets and applies the provision in that manner. 912 A.2d at 111-13.
The present case is distinguishable from Harris in two ways. First and foremost,
the contract in the present case is not one of adhesion. A contract of adhesion is
“presented to the public on standardized printed forms, on a take-it-or-leave-it basis
without opportunity for purchasers to negotiate any of the terms.” Rudbart v. North
Jersey Dist. Water Supply Comm’n, 605 A.2d 681, 686 (N.J. 1992). Here, the plaintiffs

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The plaintiffs make two additional arguments as to the forum fees, but both are7
unavailing. First, the plaintiffs argue that the forum fees were not part of their submission
to NASD arbitration. However, they chose to submit their claims to NASD arbitration,
and the NASD arbitration rule specifically states that “[t]he arbitrators, in their awards,
shall determine the amount chargeable to the parties as forum fees and shall determine
who shall pay such forum fees.” NASD Rule 10332(c). Thus, the plaintiffs were on
notice that the panel could assess forum fees against the plaintiffs.
Second, the plaintiffs argue that the panel could not assess forum fees against the
plaintiff’s custodial accounts because the plaintiffs had withdrawn the claims regarding
those accounts. However, although the arbitration award names the custodial accounts in
discussing the “claimants,” it subsequently states that the plaintiffs withdrew these claims,
and does not indicate that it was assessing any costs regarding these claims. Therefore,
we cannot find that the panel erroneously assessed the forum fees.
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chose to submit their claim with the NASD, seeking an NASD arbitration; the plaintiffs
were not bound to arbitration “on a take-it-or-leave-it basis.” Thus, the decision in
Harris, which applied to contracts of adhesion, would not apply to the present case.
However, even if Harris did apply, the present case is distinguishable because the panel
of arbitrators did not interpret or apply the provision to shift all of the costs to the
plaintiffs. Instead, the panel assigned only fifty-two percent of the forum fees to the
plaintiffs. Therefore, the panel’s award of forum fees to the plaintiffs based on the
arbitration provision was not unconscionable.7
IV.
We have considered the parties’ remaining arguments and find them without merit.
For these reasons, we will affirm the order of the District Court.

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